Old McDonald had…really expensive crop insurance: Two proposals to improve equity and efficiency of U.S. crop insurance

Washington DC (May 11) – The current debate over the 2018 farm bill has recently centered on cuts to the Supplemental Nutrition Assistance Program (SNAP), which are aimed at paring back the bill’s massive agricultural subsidies. However, another part of the bill, the federal crop insurance program, is ripe for reform. The program, which provides farmers with valuable insurance coverage at a small fraction of what it costs to deliver, currently flows subsidies to high-income farmers without limit and distorts insurance decisions.

In a new policy paper, R Street Associate Fellow, Bruce Babcock, examines two proposals that could meet the objectives of the crop insurance program at significantly lower costs and reduce the corporate welfare and waste in the agriculture portion of the farm bill. The first is to eliminate the additional premium subsidies that flow to farmers when they choose to insure their crops with “Harvest Price Option” revenue insurance. The second is to reduce premium subsidies to wealthy farmers by means-testing crop insurance subsidies.

The primary objective of the U.S. crop insurance program is to push participation rates high enough that Congress does not need to make ad hoc disaster payments to agriculture. But currently, while the system does induce farmers into the program, it does so at too high a cost. According to the author, the paper’s two proposals “would cut taxpayer costs and increase equity without sacrificing program objectives.”